These analysts say a data drought may not deter a Fed rate cut. Here’s why.

Investing.com - A dearth of economic data is unlikely to derail expectations that the Federal Reserve will cut interest rates at its next policy meeting, according to analysts at Morgan Stanley.

Key indicators, including gauges of the U.S. labor market and price gains, have been delayed due to a federal government shutdown that is now in its third week.

These postponements have denied Fed policymakers the chance to parse through a slew of measures typically used to calibrate interest rates. The outlook for borrowing costs in the world’s largest economy has become somewhat murkier as a result.

In a note, the Morgan Stanley analysts including Michael Gapen projected that an extended shutdown into November would "greatly reduce the amount of data available to the Fed" prior to its upcoming meeting on October 28-29.

But, citing statements from a series of Fed officials this week which hinted at a willingness to cut rates at the meeting, they do not foresee the official data drought as a potential obstacle that could keep the central bank from slashing borrowing costs.

"In short, no data is no problem for the Fed. The Fed saw enough over the summer to be convinced that its policy stance was overly restrictive in light of a changing balance of risks," the analysts said.

The Fed previously cut rates by 25 basis points in September, arguing that it was necessary to help support a flagging employment picture despite some signs of sticky inflation. Policymakers also broadly predicted that more drawdowns could be coming at meetings this month and in December.

Markets are currently all but certain the Fed will slash rates by a quarter of a percentage point at both of these gatherings, CME’s FedWatch Tool has shown.

Meanwhile, the shutdown has shown few signs of ending soon, with Republican and Democratic lawmakers at an impasse over a bill to fund the government. Worries over the toll of the standoff have begun to grow, with the U.S. Treasury Department suggesting that the economy stands to lose as much as $15 billion per week in lost output during the shuttering.

The Morgan Stanley analysts warned that investors should "be prepared" for the shutdown to "go on for some time."

"We have not taken a view on how long the shutdown will last, but we see little urgency from policymakers to end the standoff anytime soon," they wrote.